An Analysis of New Capital Expenditures by the Forest Products Industry in the Pacific Northwest by

Annual new capital expenditures are analyzed for the lumber and wood products industry (SIC 24), the logging industry (SIC 241), and the paper and allied products industry (SIC 26) in the Pacific Northwest from 1963 to 1996, with particular attention given to changes after 1988, the date harvest restrictions came into effect. Various time series models are considered. An autoregressive model, AR(1), incorporating a nonlinear (linear) trend variable and a dummy variable for the preand post-1988 period best fits the data. Results show that investment has been declining over time but the harvest restrictions had no significant impacts. 1 Approved for publication as Journal Article No. FO124 of the Forest & Wildlife Research Center, Mississippi State University. 2 Graduate Student and Associate Professor, respectively, Department of Forestry, Mississippi State University, PO Box 9681, Mississippi State, MS 39762 – Contact. I.A. Munn @ (662) 325-2792 or [email protected]. INTRODUCTION Old growth forests in the Pacific Northwest (PNW) are rich pools of natural resources. They provide desirable habitats for the northern spotted owl (Strix occidentalis caurina) as well as high-quality lumber and plywood. Since each pair of owls requires roughly 300 acres of old growth forest to breed successfully (Caldwell et al. 1994), substantial acreage of old growth forest is required for the recovery of the northern spotted owl population level. Therefore, the northern spotted owl’s habitat protection under the Endangered Species Act (ESA) has led to harvest restrictions on National Forests in the PNW, which have traditionally been the largest timber providers in the United States. The harvest restrictions have resulted in tremendous reductions in the timber harvest in the PNW, which started in 1989, and have been sustained thereafter (Figure 1). Since the northern spotted owl was listed as a threatened species in 1990, many economic analyses have been conducted. Rubin et al. (1991) analyzed benefits and costs of the northern spotted owl’s protection using the contingent valuation method (CVM), and concluded that the cost of spotted owl protection was greater than the benefit in Washington and Oregon, but less in California and the United States. Sample and Le Master (1992) traced employment studies in the forest products industry in the PNW, and suggested that the downward trend in employment should be viewed as increasing labor productivity and decreasing timber harvests unrelated to the protection of spotted owl habitat. Waters et al. (1997) examined the harvest restrictions’ impacts on the Northeast Oregon economy using regional computable general equilibrium (CGE) models, and indicated that the harvest restrictions had resulted in the loss of jobs and household income. They suggested that the employment in resource-based industries was shifting to tourism and retirement-based services. Figure 1. Volume of timber harvested from National Forests in the PNW. Source: PNW-GTR-423 (Haynes 1998). Although there were many studies on estimates of economic costs to timber-dependent industries from the northern spotted owl habitat protection, conclusions did not always agree. Furthermore, most studies focused on short-term, adverse effects on existing economic institutions (Marcot and Thomas 1997).